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The New Zealand dollar continued to push higher on US dollar profit taking in the wake of US President Donald Trump's latest comments on trade and the border tax.

The kiwi gained to 72.44 US cents as at 5pm in Wellington from 72.12 cents at 8am and 72.02 cents late Monday in Wellington. The trade-weighted index was at 78.96 from 78.65 yesterday.

The local currency "is stronger, but it's all about the US dollar. The market just got a little ahead of itself and now we are seeing some profit taking," said Tim Kelleher, head of institutional foreign exchange sales for ASB Bank. The greenback gained strongly after Trump's election on a possible increase in infrastructure spending but has pulled back on ongoing uncertainty given that details remain thin. Kelleher said he expects the kiwi to continue to push higher against the US dollar, with support now around 72 US cents and resistance at 73. He said a key level for the TWI is 79.50.

HSBC Australia and New Zealand chief economist Paul Bloxham said he expects the greenback to gain over the long term as the Trump administration will be positive for US growth. He underscored, however, there is still "considerable uncertainty" around what Trump will deliver.

investors will be watching for Australia's inflation data Wednesday, followed by New Zealand's consumers price index for the fourth quarter, due on Thursday and expected to show annual inflation has returned to the Reserve Bank's target band.

New Zealand's two-year swap rate was unchanged at 2.37 per cent, and 10-year swaps were unchanged at 3.43 per cent.

New Zealand consumer prices rose at their fastest annual pace in two-and-a-half years in the final three months of 2016 as a recovery in global oil prices pushed up the cost of petrol, and the nation's bubbling property market continued to drive up house prices. The kiwi dollar rose above 73 US cents.

The consumers price index rose 0.4 per cent in the three months ended December 31 for an annual pace of 1.3 per cent, Statistics New Zealand said. That was the fastest annual pace since June 2014 and the first time headline inflation has been within the Reserve Bank's target band of 1-to-3 per cent in two years. Economists had been picking quarterly inflation of 0.2 per cent for an annual pace of 1.2 per cent.

Petrol prices rose 4.1 per cent in the quarter, reducing the annual decline to 0.5 per cent. A slump in oil prices and resilient New Zealand dollar has kept a lid on headline CPI as households benefited from cheaper imports and lower transport costs, though the turnaround in energy costs heightened expectations for inflationary pressures to emerge.

"This is the first time in over two years that price increases for household purchases have been over 1 percent," Statistics NZ prices senior manager Jason Attewell said. "Household price inflation is up from a historical low of 0.1 per cent for the December 2015 year."

The New Zealand dollar rose to 73.03 US cents from 72.70 cents immediately before the data was released. The trade-weighted index rose to 79.68 from 79.34, while the kiwi rose to 96.31 Australian cents from 95.96 cents.

The Reserve Bank of New Zealand held rates steady as expected at a record low 1.75% on Thursday, and said policy would retain an easing bias. NZD/USD traded at 0.7039, down 0.04%

"Monetary policy will remain accommodative for a considerable period," Reserve Bank Governor Graeme Wheeler said in a statement. "Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."

Currently, NZD/USD is trading at 0.7270, down -0.65% on the day, having posted a daily high at 0.7333 and low at 0.7262.

NZD/USD has dropped heavily on the back of the New Zealand inflation data for Q2: CPI 0.0% q/q (expected +0.2%) while year on year arrived at 1.7% vs 1.9%. Overall a big disappointment to the markets judging by the price action with the 0.73 handle left for dust and meeting 7th July lows right off the bat.

The greenback has managed to take up a bid despite the spectrum of poor data at the end of last week that resulted in a sell-off in the US dollar. Analysts at Westpac previously acknowledged the Fed’s tightening cycle plus US fiscal expansion that should eventually reassert upside pressure on US interest rates and the US dollar, pushing NZD/USD below 0.6800 by year end.

NZD/USD continues to ride the peripheral weakness in the greenback and we suggest for today's outlook there is potential to continue this rally to 0.7485 (Sep 16 peak) during the next few days.
On a wider outlook, the analysts figure that the Fed’s tightening cycle plus US fiscal expansion should eventually reassert upside pressure on US interest rates and the US dollar, pushing NZD/USD to 0.6800 by year end. US factors should outweigh local factors which are mostly supportive (25 May).

Moreover, the analysts finished, " We think that the market is off-base in pricing in an OCR hike for next year, even if the timing has been pushed out from June to August since the CPI figures. In contrast, we don’t expect an OCR hike before 2019, and that sort of horizon is too far out to be specific about the timing."

NZD/USD is consolidating the fall from the 0.7450's after the US dollar flexed its dwindling muscles in the latter half of the US session. Commodity currencies had otherwise been performing well with a rebound in metal prices and WTI shooting up through the $49 handle to highs of $49.75.

There is no NZ data due for today, although the RBA's SOMP could be a factor in Kiwi's performance this week and flows in the cross could impact, (AUD/NZD broke up and out of the 1.06-1.07 consolidation on the back of weaker than expected NZ labor market data earlier this week). Analysts noted that the bird has been slipping lower in recent days and remains vulnerable in the near term.

Although the trend is bullish; but I think 0.7403 was a good opportunity for the short term sellers! You may see, right now sellers are too much active in this trading pair; if they can keep continuing with the same flow then we can expect 0.7061 level very soon! It’s a very important support level; next support level is 0.6817.